Venezuela: The Latest Case for Free Markets

People need to be reminded more often than they need to be instructed. — Samuel Johnson

VENEZUELA IS STARVING: Hobbled by economic policies, Latin America’s once-richest country can no longer feed its people — Wall Street Journal headline, May 6, 2017

The 20th century can be viewed as a collection of petri dishes of economic experiments. Some countries tried socialism. There, governments controlled the economy and decided what goods and

services should be produced, and at what prices. Other countries had free markets, where people exchanged goods and services largely without government guidance. How did these experiments turn out?

The experiments in government control of the economy led to incalculable human suffering. Pity the unfortunate citizens of the socialist nations of China, the Soviet Union, Cuba, North Korea, Cambodia, Zimbabwe and elsewhere. Millions in the Soviet Union and in China died from starvation. In the 1990s, an estimated 10% of North Korea’s population starved to death, and the suffering of North Korea’s people continues today.

Government-controlled economies in the 20th Century also introduced the world to a new type of catastrophe: man-made famine. Previously, famines had been the result of natural events. Thanks to the experiment of state-run economies, the world saw something new under the sun: government-created famines, causing the deaths of tens of millions.

Other places had free markets. For most of the 20th century, free markets existed in the United States, Canada, Australia, Western Europe, and, later in the century, the Pacific rim nations of Japan, South Korea and Taiwan. The people of those nations enjoyed huge increases in wealth and prosperity. In the US, per capita Gross Domestic Product rose from $5,301 in 1913 to $27,331 in 1998 (stated in 1990 dollars).

You would think that the socialism vs free-market lessons of the 20th century would be so obvious that no one today would support socialism. After seeing the results of the systems, who would want a state-controlled economy? Incredibly, the connection between free markets and prosperity continues to be overlooked. Many continue to insist, despite all the evidence, that government control can work.

The latest victims of the fraud, or forgetfulness, are the people of Venezuela. Venezuela was once the most prosperous Latin American nation. Then in 1998, the people of Venezuela elected a new President, Hugo Chavez, who promised to make the nation stronger through socialism.

Today, after 19 years of socialist policies, we read the Wall Street Journal headline (May 6, 2017): VENEZUELA IS STARVING. The decline in oil prices has hurt oil-exporting Venezuela. But the primary problem is socialist policies, such as government-set prices for goods and services. As anyone familiar with the history of the 20th century could have predicted, those price controls have led to extreme shortages on everything from medicine to clothing to food. At government prices, farmers spend more to grow the food than they make selling the food; so farmers stop growing food. At government prices, store owners spend more to stock their shelves than they make selling their goods; so their shelves are empty.

Now, 82% of Venezuelans live in poverty. According to the International Monetary Fund, Venezuela has the world’s worst negative growth rate (-8% decline in gross domestic product in 2016) and an estimated 720% inflation rate this year. In 2016, Venezuelans lost an average of 19 pounds in weight on what is grimly known as the Maduro diet, named for Chavez’s successor, President Nicolas Maduro.

A painful lesson on socialism, this sad echo from the 20th century, being re-taught today at the cost of the suffering of the Venezuelan people.